J.C. Penney's New CEO Has Her Work Cut Out for Her

Jill Soltau, the retailer's first female CEO, took the helm of the Texas-based company on Monday.

Jill Soltau, J.C. Penney's (JCP) first-ever female CEO, has her work cut out for her as she seeks to reupholster a tattered retailer.

The Plano, Texas-based retailer's start for Soltau ends a five-month lack of leadership since the departure of former CEO Marvin Ellison in favor of Lowe's Corp. (LOW) .

Her first day on the job comes on the heels of a bankruptcy filing by Sears Holdings Corp. (SHLD) and investors were pushing Penney's stock down 5% to $1.67 as of 2:30 p.m. ET.

Analysts say Soltau's experience is solid and directly applicable to the challenges she will face at Penney. But her accession comes as the company is struggling to dig itself out of a hole.

"She is joining the company when the strategy is in transition," Piper Jaffray Senior Research Analyst Erinn Murphy wrote in a recent note. "We remain sidelined tied to our longer-term view on department store retailing and given our belief that inventory at JCP is still in process of being right-sized."

Murphy and her team thus offered a $1.50 price target and a neutral rating for the stock as she questioned how much difference one person can make at the long-struggling retailer.

Who is Soltau?

Soltau comes to J.C. Penney from Jo-Ann Stores, a privately-held, Ohio-based specialty retailer of crafts and fabrics, where she has served as CEO since March of 2015.

"Jill stood out from the start among an incredibly strong slate of candidates," Paul Brown, the company's board director and chairman of the search committee said in a statement. "As we looked for the right person to lead this iconic company, we wanted someone with rich apparel and merchandising experience and found Jill to be an ideal fit."

Her vision in marketing and e-commerce was noted as particularly important for the retailer as it seeks to modernize and spark a turnaround.

"Her depth of experience in product development, marketing, e-commerce and store operations have been an important basis for the turnaround work she spearheaded at prior companies," Brown explained.

While at Jo-Ann, Soltau's branding efforts changed the company's name, color scheme, and logo and furthered e-commerce measures to unlock value for the company stuck a generation behind. J.C. Penney shareholders will certainly hope that she can do the same for the aging retailer as it looks to capture interest from younger customers who have shunned their stores.

Her efforts in digital will be paramount as well, given the company's consistent losses to the "Amazon (AMZN) effect." Luckily, she does have experience in this category.

"We were surprised to learn that (Jo-Ann) has some unique digital/mobile capabilities," Murphy explained. "In fact, Jo-Ann's App is ranked No. 19 in the Shopping category with a 5-star rating based on 175,000 reviews," according to Piper Jaffray research.

"We note that Soltau is taking the helm while JCP is in the early stages of a number of strategic initiatives, including shifting its inventory strategy from "buy to store capacity" to "buy to chase trends," Murphy added.

Soltau's stewardship through this transition to attract a larger client base will be vital to J.C. Penney shares avoiding a sink to zero as Sears Holdings (SHLD) has before it.

Ellison's Exit Sets the Stage

The primary cause of the company's trouble at the top in recent months is the exit of former CEO Ellison.

"This has been a gut-wrenching decision," he said. "When I arrived here and moved my family to Dallas in 2015, I believed this would be my last job."

It would not be, as he left the company without a succession plan and J.C. Penney stock in a free-fall.

His tenure lost the company billions off of its valuation. At the start of Ellison's tenure, shares traded at nearly $8 per share. By his departure, the stock has fallen to around $2.50 per share. The bleeding hasn't stopped amid mounting debt and a declining customer base.

To be fair to Ellison, J.C. Penney's long decline had been kickstarted years earlier by former Apple (AAPL) SVP of Retail Ron Johnson, who's eschewing of JCP's discounting model lost customers in droves. It also prevented the company from getting out from underneath its debt, which Ellison lamented as saddling the company upon his exit.

"The company is not exactly where it wants to be financially, but we've come a long way," he said, explaining $1.6 billion in debt payments made in his tenure.

Even with Ellison's efforts, Soltau will still need to deal with $4.2 billion in debt left by her predecessors as she tries to turn around the company. The burden will be a heavy one to bear as the company struggles to realign itself.

She will have some room to maneuver as the company has enough cash on hand to meet its October 2019 and June 2020 obligations of $50 million and $110 million respectively.

Bottom Line

J.C. Penney has been a seemingly aimless company this year as the already struggling retailer continues to slide.

A steady hand at the top is a welcome sight for shareholders after a stalled turnaround.

Analysts are waiting patiently so far, as 12 of 13 analysts publishing research on FactSet have issued hold ratings.

Her direction at the top of the company is critical, but it is uncertain if anyone can stop the downward trajectory of shares at this point. Monday's decline confirms the tall order that Soltau will have to meet.

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